Restrictions on restaurant patronage and strict social distancing measures have increased at-home food consumption and, thus, the demand for groceries. To capitalize on this trend, while many brick-and-mortar groceries retailers have focused on enhancing their online presence, many e-commerce giants ventured into groceries. Overall, companies that have been able to exploit opportunities to sell groceries have thrived amid the pandemic. The global food and grocery retail market size is expected to grow at a CAGR of 5% over the next seven years.
But many analysts are of the opinion that the stellar sales growth that online grocery channels have generated may not continue. They fear that many grocery retailers may witness only modest growth or even a decline in sales in the future with restaurant patronage returning to pre-pandemic levels. So, many grocery stocks that are trading at high valuations could witness a retreat.
However, because the online shopping trend is expected to continue even after the pandemic is vanquished, we think fundamentally sound small-cap grocery stocks such as Ingles Markets, Incorporated (IMKTA) and Weis Markets, Inc. (WMK) should gain significantly.
Ingles Markets, Incorporated (IMKTA)
Headquartered in Asheville, IMKTA is a leading grocer that operates 197 supermarkets in six southeastern states. The company’s segments include retail grocery and other segments, which consist of fluid dairy operations and shopping center rentals. The company focuses on selling products to its customers through the delivery of organic products, bakery departments and prepared foods, including delicatessen sections.
Last November, IMKTA partnered with the U.S. Department of Health and Human Services (HHS) to administer COVID-19 vaccines through Ingles Markets Pharmacy.
IMKTA’s net sales have increased 10.4% year-over-year to $1.19 billion in the first quarter, ended December 26, 2020. Its gross profit has increased 22% from its year-ago value to $314.19 million, while its income from operations has risen 98.7% to $76.44 million over the same period. Its EPS (Class A) has improved 203.33% year-over-year to $2.73 over the three-month period.
Analysts expect IMKTA’s EPS to grow at a CAGR of 14.5% over the next five years. The stock has gained 42.8% over the past six months and is currently trading at 0.24x its trailing-12-month sales, 83.9% lower than the industry average 1.47x.
IMKTA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
IMKTA has a grade of A for Quality, Value and Growth, and a B for Stability. Of the 39 stocks in the A-rated Grocery/Big Box Retailers Industry, the stock is ranked #1.
In total, we rate IMKTA on eight different levels. Beyond what we’ve stated above, we have also given IMKTA grades for Momentum and Sentiment. Get all of IMKTA’s ratings here.
Weis Markets, Inc. (WMK)
WMK is a Mid Atlantic food retailer that operates 195 stores in Pennsylvania and surrounding states. The company’s retail food stores sell groceries, dairy products, frozen foods, pharmacy services, bakery products, alcoholic drinks, fuel and various other products, including general merchandise items, such as health and beauty care and household products.
WMK saw increased ecommerce sales in the third quarter because of the remote working environment. The company met this demand with agile procurement, disciplined marketing and pricing programs, and accelerated replenishment schedules.
WMK’s revenues have increased 14.4% year-over-year to $1 billion in the third quarter ended September 26, 2020. Its income from operations has increased 144% from its year-ago value to $42.81 million, while its net income has risen 118.8% to $31.34 million over the same period. Its EPS has improved 118.9% year-over-year to $1.16 over the 13-week period.
The stock has gained 13.9% year-to-date and is currently trading at 0.37x its trailing-12-month sales, 75.1% lower than the industry average 1.47x.
It’s no surprise that WMK has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. WMK has a B grade for Quality, Stability, Value and Growth. In the same industry, the stock is ranked #2.
Click here to see the additional POWR Ratings for WMK (Momentum and Sentiment).
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IMKTA shares were trading at $58.24 per share on Thursday morning, up $1.01 (+1.76%). Year-to-date, IMKTA has gained 37.05%, versus a 2.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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